Biweekly Mortgage Payments: What You Should Know And Consider

If you’re a homeowner with a mortgage, you know that traditional payment schedules consist of a monthly amount that includes principal and interest. If you have an escrow account like most homeowners, property taxes, homeowners insurance and possibly mortgage insurance are also included. These components determine what your monthly mortgage payment will be.

Depending on the above components, your mortgage can feel like a big monthly payment that’s a little overwhelming when it hits you all at once. It’s for this very reason that some homeowners choose a biweekly payment program. This can be a more manageable price in contrast to the monthly payment, as it's broken in half and paid every 2 weeks.

Before you decide whether you want to enroll in biweekly mortgage payments, check out these important factors that could potentially save you thousands while paying off your mortgage faster.

What Is A Biweekly Mortgage?

As opposed to a typical mortgage where payments are made once a month, biweekly payments are paid every 2 weeks. Though you’ll be paying your mortgage more frequently, the amount due for each installment is reduced to half a month’s payment.

Biweekly Mortgage Payments Vs. Monthly Payments: An Example

Let’s say you currently pay $1,400 on your mortgage at the end of every month. Opting for biweekly payments would divide that amount into $700 payments every 2 weeks. This might seem like a minor change to your repayment plans, but over the lifetime of your loan biweekly mortgages can help you pay off your mortgage loan early, all while cutting down on the total interest you’ll pay.

How Do Biweekly Mortgage Payments Work?

At first glance, biweekly mortgage payments look like they put the same amount toward your repayment every month. So how is it possible that this method saves you money? Let’s break it down.

There are 52 weeks per year. That means switching to a biweekly payment system will add up to 26 payments per year, resulting in 13 monthly payments total. Compare that to a traditional payment schedule of once a month (12 monthly payments), and you’ll find that you’re making one extra monthly mortgage payment toward the principal balance on your loan every year.

This means you’ll also be making smaller payments each billing cycle. While the biweekly payment will add up to the same amount as a monthly payment, the advantage is the smaller, more manageable payments you get to make, allowing for easier budgeting and payment planning.

If you’re opting for biweekly payments as a Rocket Mortgage^® client, note that you have to be 1 month ahead in your payments before starting on the biweekly program. Once you’re set up with the biweekly payment program, your payments will be applied to your loan on a monthly basis. Clients purchasing a home can opt for biweekly payments right away.

Pros And Cons Of Biweekly Mortgage Payments

Before switching to biweekly payments, you’ll want to consider the advantages and disadvantages that come with this new mortgage schedule. Let’s take a look at both to help you decide if this is the right decision for you.

The Benefits Of Paying Your Mortgage Biweekly

On top of paying your mortgage in half payments, biweekly mortgages offer a number of additional benefits that make this repayment strategy worth considering. Below are some of the biggest pros that you can enjoy if you start paying your mortgage every other week.

Pay Off Your Home Quicker

That extra payment every year goes a long way in the life of your loan. It can actually cut years off of your repayment timeline – if you’re making an extra payment every year by switching to a biweekly payment program, you’re building equity in your home quicker than when you were making monthly payments, effectively paying your home off faster.

Let’s put some numbers to this scenario. Say your loan is $200,000 on a 30-year fixed-rate mortgage with a 4.125% interest rate. We’ll take a look at it from both a monthly and biweekly payment perspective.

Biweekly payments mean you pay off your loan 4 years and 3 months early by making the equivalent of one extra payment per year.

Save Thousands

Not only will switching to biweekly payments save you time on the life of your loan, but it can also save thousands in payments and interest.

Let’s continue with that same scenario of a $200,000 loan amount. By switching to a biweekly payment program, you can see in the table above that you save more than $24,000 in interest over the life of your loan.

To clarify, your principal balance will ultimately add up to the same amount as if you were making monthly payments – the money you save is reflected in the amount of interest you’ll pay over the life of your loan, which is significantly lower when you make biweekly payments.

Think of what you can do with the money you save by switching to biweekly payments! You could fund a home improvement project, save for retirement or even add to your child’s college fund.

Want to see your savings for yourself? Check out our amortization calculator and see how much you can save.

Align Your Payments With Your Pay Schedule

As mentioned above, traditional payments have you paying your mortgage once a month, while biweekly payments spread out your payments every 2 weeks. This can come in handy for two reasons:

• If you’re paid every 2 weeks, biweekly payments can be smaller and more manageable and can be scheduled on your paydays.
• If you’re on a fixed income, you don’t have to deal with a large payment due all at once every month.

Because biweekly payments align closely with a typical paycheck schedule, many people find that their mortgage is easier to fit into their overall household budget. Aligning each payment with your payday ensures that you’ll still have the necessary funds in your account, and it can keep you from spending money that you would later need to pay off a larger, end-of-the-month bill.

The Drawbacks Of Biweekly Mortgages

Despite the evident benefits of a biweekly payment schedule, some borrowers may still find that traditional repayment plans are better suited for their financial situations. Here are a few potential negatives you might encounter if you do switch to a biweekly plan.

Less Cash For Other Expenses

Contributing an additional month’s worth of money toward your mortgage will result in a faster repayment, but it also means you’ll have fewer resources to handle the rest of your expenses. If you’re already working with a tight budget, biweekly payments could further restrict the amount you’re able to put toward your other debts and fixed living costs.

Even if you’re not low on resources, biweekly mortgage payments might not make sense for you if that money could be better used on other opportunities. For example, if you have a low-interest mortgage, you could be better off investing your money into high-return opportunities instead. The key is to determine if the amount you could make will exceed the total you would have saved by paying off your mortgage ahead of schedule.

Funds Must Be Available For Each Payment

You might also struggle to keep up with biweekly withdrawals if your pay schedule is irregular or if you receive a single, substantial paycheck every month. For these types of earners, it could actually be more difficult to make sure they have all the funds necessary to pay multiple mortgage installments every month.

Prepayment Penalties

Before you set up biweekly payments, check the terms of your mortgage for any prepayment penalties, or the fees you’ll incur if you pay off your principal balance ahead of schedule.

Not every mortgage will include a prepayment penalty clause, but the ones that do often include conditions on how much you’ll pay as a fee and if the clause will expire after a certain number of years. These early payoff fees can considerably reduce the amount you would have otherwise saved on interest. Rocket Mortgage doesn’t charge prepayment penalties.

Additional Service Charges

On top of prepayment penalties, some lenders charge additional servicing fees to borrowers who want to change the frequency of their payments. In most cases, these additional expenses are designed to help the lender cover the additional interest they would have received in your original mortgage payment schedule.

In an effort to avoid these charges, some homeowners turn to third-party vendors that claim to offer biweekly payment plans in place of the borrower’s original mortgage lender. You should thoroughly investigate these options to make sure they are both legitimate and cost-effective before signing over your remaining mortgage. Not only do some of these vendors charge substantial servicing fees, but they may also tack on additional charges every month of your repayment, which could end up costing you more than you save.

When it comes to avoiding unnecessary service fees, the best solution is to choose a mortgage lender that allows you to switch to biweekly payments at no additional cost.

How To Make Biweekly Mortgage Payments

To start biweekly payments, you can choose a day between the 1st and 14th of the month. This way, you can guarantee that every 14 days following, half of a mortgage payment will be withdrawn from your bank account. You also don’t have to worry about sending a check each month, as biweekly payments can be automatically withdrawn from your account.

If you’re a current Rocket Mortgage client, you can start making biweekly payments by signing into your account and adjusting your payment program. In fact, signing up for biweekly payments through Rocket Mortgage is completely free – no extra fees involved.

The Bottom Line: Are Biweekly Payments Right For You?

For the right type of borrower, biweekly payments can help you save on interest and quickly add equity into your home. As with any major financial decision, it’s important that you weigh the pros and cons of paying your mortgage more frequently.

If you have questions on how you can start biweekly payments through Rocket Mortgage, you can talk to a Home Loan Expert today for more information.